Is the Soft Market “The Market”?

I spoke to an agent in Chicago this morning who commented he thought market cycles were a thing of the past and that this soft market is now “the market” so we should all get used to it. I believe financial cycles are inexorable whether we are talking about real estate, insurance, or commodities and that while sometimes extenuating circumstances, like the economy, may exacerbate the effects of a cycle, in the end the cycle holds and we transition from soft to hard or high to low depending on which cycle you’re following. Annie George recently interviewed Robert Hartwig, PH.D., CPCU, President of Insurance Information Institute who says the market will eventually firm.

Mr. Hartwig says… “There are, however, a number of factors that would indicate that a firming market is likely to occur in the next two to four years. This includes a recovery in the more general economy where some of the capital in the industry is absorbed through an increase in demand for commercial insurance. Another factor is that for many insurers current calendar year results are improved by prior year reserve releases. It’s inevitable that at some point insurers will exhaust these reserves and there will be more pressure to improve current calendar results through pricing. Additionally, 70% of insurer investment is in low-interest bonds, therefore companies will be offsetting less of their underwriting losses with investment income, which will also put pressure on insurance pricing. And, a likely deterioration of the tort environment, which is already occurring, will become more pronounced over the next few years, also affecting the market. All of these factors taken together are likely to produce firming market conditions in the 2012-2014 timeframe.” To read the rest of the interview click here… http://tiny.cc/0pimu

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